1. What is the reserve requirement? A. 25% B. 5% C. 10% D. 40% 2. Suppose the fe
ID: 1201904 • Letter: 1
Question
1. What is the reserve requirement? A. 25% B. 5% C. 10% D. 40%2. Suppose the federal reserve buys $10 million of bonds from a bond dealer, who immediately deposits the funds in her checking account. What is the INITIAL impact of this transaction? A. The banking systems holdings of securities fall by $10 million and the banking systems total legal reserves rise by $10 million. B. The banking systems holdings of securities rise by $10 million and the banking systems total legal reserves fall by $10 million C. Deposits rise by $10 million and the banking systems holdings of securities rise by $10 million D. Deposits rise by $10 million and the banking systems total legal reserves rise by $10 million.
3. As a result of the federal reserves purchase of $10 million of bonds (securities), deposits in the banking system can potentially _____(increase/decrease) by as much as _____ A. $40 million B. $13.33 million C. $160 million D. $10 million
Assets Liabilities and Net Worth Total reserves Loans Securities Total $40 billion 50 billion 70 billion $160 billion Deposits $160 billion Total $160 billion
Explanation / Answer
Answer 1:
Cash Reserve ratio = 100 * 40 / 160 = 25 per cent.
= 100 * reserves / Total Deposits
Answer 2:
Option C, Deposits and securities will rise by $10 million
Answer 3 :
Increase, 1 / CRR * $ 10 million = 40 million Option A
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